Village Super Market - 10-Q quarterly report FY

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

 

(Mark One)

OR

(Exact name of registrant as specified in its charter)

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

 

Indicate the number of shares outstanding of the issuer's classes of common stock as of the latest practicable date:

 

 

VILLAGE SUPER MARKET, INC.

(in Thousands)

(Unaudited)

 

See accompanying Notes to Consolidated Condensed Financial Statements.

VILLAGE SUPER MARKET, INC.

(in Thousands Except Per Share Amounts)

(Unaudited)

See accompanying Notes to Consolidated Condensed Financial Statements.

VILLAGE SUPER MARKET, INC.

(in Thousands) (Unaudited)

See accompanying Notes to Consolidated Condensed Financial Statements.

(in Thousands)

(Unaudited)

The significant accounting policies followed by Village Super Market, Inc. (the “Company”) are set forth in Note 1 to the Company's consolidated financial statements included in the July 30, 2005 Village Super Market, Inc. Annual Report on Form 10-K, which should be read in conjunction with these financial statements.

 

Options to purchase 5 shares of common stock at January 28, 2006 were excluded from the computation of diluted net income per share because their effect would be antidulutive. No securities were excluded from the computation of diluted net income per share at January 29, 2005.

 

 

As of January 28, 2006, the Company has contributed $107 to its pension plans in fiscal 2006. The Company expects to contribute an additional $1,893 during the remainder of fiscal 2006 to fund its pension plans.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

(Dollars in Thousands)

The Company operates a chain of 23 ShopRite supermarkets in New Jersey and eastern Pennsylvania. The Company is the second largest member of Wakefern Food Corporation (“Wakefern”), the nation’s largest retailer-owned food cooperative. As further described in the Company’s Form 10-K, this ownership interest in Wakefern provides the Company many of the economies of scale in purchasing, distribution, advanced retail technology and advertising associated with larger chains.

The Company’s stores, five of which are owned, average 55,000 total square feet. Larger store sizes enable the Company to offer the specialty departments that customers desire for one-stop shopping, including pharmacies, natural and organic departments, ethnic and international foods, and home meal replacement. On October 27, 2004, the Company opened an 80,000 square foot store in Somers Point, New Jersey to replace a smaller store.

We consider a variety of indicators to evaluate our performance, such as same store sales; sales per store; percentage of total sales by department (mix); shrink; departmental gross profit percentage; sales per labor hour; and hourly labor rates. In recent years, the Company, as well as many of our competitors, has faced increases in employee health and pension costs under union contracts and for non-union associates. In addition, rates charged by utilities for electric and gas increased in fiscal 2005 and 2004, and that trend continues in fiscal 2006.

Sales were $509,483 for the six-month period of fiscal 2006, an increase of 3.3% from the prior year. Same stores sales increased 3.2% due to improved sales in the recently remodeled Bernardsville and Springfield stores and higher sales in one store due to the closing of a competitor’s store. These same store sales improvements were partially offset by reduced sales in two stores due to competitive store openings.

Gross profit as a percentage of sales increased to 26.0% for the six-month period of fiscal 2006 compared to 25.4% in the corresponding period of the prior year. As a percentage of sales, gross profit increased primarily due to improved product mix, higher gross margins in most departments, and reduced warehousing and related charges from Wakefern (.07%).

Operating and administrative expense as a percentage of sales increased to 22.2% in the six-month period of fiscal 2006 compared to 22.0% in the corresponding period of the prior year. As a percentage of sales, operating and administrative expense increased primarily due to higher fringe benefit costs (.27%), utility costs (.11%) and amounts accrued related to a non-income tax state audit (.11%). These increases were partially offset by a reversal of an accrual for future lease obligations of a closed stand-alone drug store in the current fiscal year (see Note 8) compared to a charge in the prior year (.13%), a gain on the sale of assets (.09%) and lower occupancy costs (.07%). Fringe benefit costs increased primarily due to increased expense from employee pension plans and compensation costs recognized under share-based compensation plans. Utility costs increased primarily due to higher energy prices.

 

Critical accounting policies are those accounting policies that management believes are important to the portrayal of the Company’s financial condition and results of operations. These policies require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company’s critical accounting policies relating to the impairment of long-lived assets and goodwill, accounting for patronage dividends earned as a stockholder of Wakefern and accounting for pension plans are described in the Company’s Annual Report on Form 10-K for the year ended July 30, 2005. As of January 28, 2006, there have been no changes to any of the critical accounting policies contained therein.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Net cash provided by operating activities was $23,649 in the six-month period ended January 28, 2006 compared with $17,673 in the corresponding period of the prior year. This increase is primarily attributable to an increase in accounts payable and accrued expenses in the current fiscal year due to the timing of payments.

During the first six months of fiscal 2006, the Company used cash provided by operating activities to fund capital expenditures of $6,309, debt payments of $5,747 and dividends of $1,779. Major capital expenditures were the expansion and remodel of the Springfield store and smaller remodels of the Elizabeth and Chester stores. Debt payments made include the third installment of $4,286 on the Company’s unsecured Senior Notes.

Working capital was $37,999 at January 28, 2006 compared to $36,314 at July 30, 2005. The working capital ratio was 1.50 to 1 at January 28, 2006 compared to 1.52 to 1 at July 30, 2005. The Company’s working capital needs are reduced, since inventory is generally sold by the time payments to Wakefern and other suppliers are due.

The Company has budgeted approximately $12,000 for capital expenditures in fiscal 2006. These expenditures include the completed expansion and remodel of the Springfield store, and the beginning of remodels of the Morris Plains and Rio Grande stores. The Company’s primary sources of liquidity in fiscal 2006 are expected to be cash and cash equivalents on hand and operating cash flow generated in fiscal 2006.

A description of the Company’s transactions with Wakefern, its principal supplier, and with other related parties is included on pages 7, 8, 16, 19 and 20 of the Company’s Annual Report on Form 10-K for the year ended July 30, 2005. There have been no significant changes in the Company’s relationship or nature of the transactions with these related parties during the six months of fiscal 2006.

 

 

All statements, other than statements of historical fact, included in this Form 10-Q are or may be considered forward-looking statements within the meaning of federal securities law. The Company cautions the reader that there is no assurance that actual results or business conditions will not differ materially from future results, whether expressed, suggested or implied by such forward-looking statements. The Company undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof. The following are among the principal factors that could cause actual results to differ from the forward-looking statements: local economic conditions; competitive pressures from the Company’s operating environment; the ability of the Company to maintain and improve its sales and margins; the ability to attract and retain qualified associates; the availability of new store locations; the availability of capital; the liquidity of the Company; the success of operating initiatives; consumer spending patterns; the impact of higher energy prices; increased cost of goods sold, including increased costs from the Company’s principal supplier, Wakefern; the results of union contract negotiations; competitive store openings; the rate of return on pension assets; and other factors detailed herein and in other public filings of the Company.

 

The Company is exposed to market risks arising from adverse changes in interest rates. As of January 28, 2006, the Company’s only variable rate borrowings relate to an interest rate swap agreement. On October 18, 2001, the Company entered into an interest rate swap agreement with a major financial institution pursuant to which the Company pays a variable rate of six-month LIBOR plus 3.36% (8.15% at January 28, 2006) on an initial notional amount of $10,000 expiring in September 2009 in exchange for a fixed rate of 8.12%. The swap agreement notional amount decreases in amounts and on dates corresponding to the fixed rate obligation it hedges. At January 28, 2006 the remaining notional amount of the swap agreement was $5,714. A 1% increase in interest rates, applied to the Company’s borrowings at January 28, 2006, would result in an annual increase in interest expense and a corresponding reduction in cash flow of approximately $57. The fair value of the Company’s fixed rate debt is also affected by changes in interest rates.

At January 28, 2006, the Company had demand deposits of $56,900 at Wakefern earning interest at prime less 2.5%, or overnight money market rates, which are exposed to the impact of interest rate changes.

As required by Rule 13a-15 under the Exchange Act, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures at the end of the period. This evaluation was carried out under the supervision, and with the participation, of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer. Based upon that evaluation, the Company’s Chief Executive Officer, along with the Company’s Chief Financial Officer, concluded that the Company’s disclosure controls and procedures are effective.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

There have been no significant changes in internal controls over financial reporting during the second quarter of fiscal 2006.

PART II - OTHER INFORMATION

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Exhibit 28(a)

VILLAGE SUPER MARKET, INC.

REPORTS RESULTS FOR THE QUARTER AND SIX MONTHS ENDED

JANUARY 28, 2006

 

 

Net income was $4,447,000 ($1.38 per diluted share) in the second quarter of fiscal 2006 compared to $4,357,000 in the second quarter of the prior year. Results for the second quarter of the prior year include $890,000 (after-tax) of income received from a partnership. Excluding this partnership income, net income in the second quarter of fiscal 2006 increased 28% from the pro forma net income in the second quarter of the prior year of $3,467,000. Net income increased primarily due to improved sales and gross profit percentages.

Sales were $266,038,000 in the second quarter of fiscal 2006, an increase of 3.9% from the second quarter of the prior year. Same store sales increased 4.2% due to improved sales in the recently remodeled Bernardsville and Springfield stores and improved sales in one store due to the closing of a competitor’s store. These same store sales improvements were partially offset by reduced sales in one store due to a competitive store opening. Same store sales increased more than sales due to the closing of a stand-alone drug store in the prior fiscal year.

Net income for the six-month period of fiscal 2006 was $7,414,000 ($2.29 per diluted share) compared with $7,044,000 in the prior year. Excluding the income received from the partnership in the prior year described above, net income for the first six months of fiscal 2006 increased 20% from the prior year. Sales for the six-month period of fiscal 2006 were $509,483,000, an increase of 3.3% from the prior year. Same store sales increased 3.2% in the six-month period of fiscal 2006 compared to the prior year.

Village Super Market operates a chain of 23 supermarkets under the ShopRite name in New Jersey and eastern Pennsylvania.

All statements, other than statements of historical fact, included in this Press Release are or may be considered forward-looking statements within the meaning of federal securities law. The Company cautions the reader that there is no assurance that actual results or business conditions will not differ materially from future results, whether expressed, suggested or implied by such forward-looking statements. The Company undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof. The following are among the principal factors that could cause actual results to differ from the forward-looking statements: local economic conditions; competitive pressures from the Company’s operating environment; the ability of the Company to maintain and improve its sales and margins; the ability to attract and retain qualified associates; the availability of new store locations; the availability of capital; the liquidity of the Company; the success of operating initiatives; consumer spending patterns; the impact of higher energy prices; increased cost of goods sold, including increased costs from the Company’s principal supplier, Wakefern; the results of union contract negotiations; competitive store openings; the rate of return on pension assets; and other factors detailed herein and in the Company’s filings with the SEC.

VILLAGE SUPER MARKET, INC.

(Dollars in Thousands Except Per Share Amounts)

(Unaudited)

EXECUTIVE OFFICES

733 Mountain Avenue

Springfield, New Jersey 07081

Phone: (973) 467-2200

Fax: (973) 467-6582

To Our Shareholders

Net income was $2,968,000 ($.92 per diluted share) in the first quarter of fiscal 2006, an increase of 10% from the first quarter of the prior year. Net income increased primarily due to improved sales and gross profit percentages, partially offset by increased operating expenses.

Sales were $243,445,000 in the first quarter of fiscal 2006, an increase of 2.6% from the first quarter of the prior year. Sales increased due to the opening of an 80,000 sq. ft. replacement store in Somers Point, New Jersey on October 27, 2004 and a same store sales increase of 2.0%. Same store sales increased due to improved sales in the recently remodeled Bernardsville and Springfield stores and improved sales in one store due to the closing of a competitor’s store. These same store sales improvements were partially offset by reduced sales in certain stores due to competitive store openings.

Gross profit as a percentage of sales increased to 26.0% in the first quarter of fiscal 2006 compared to 25.2% in the first quarter of the prior year. As a percentage of sales, gross profit increased primarily due to improved product mix, higher gross margins in most departments and reduced warehousing and related charges from Wakefern (.10%).

Operating and administrative expense as a percentage of sales increased to 22.6% in the first quarter of fiscal 2006 compared to 22.1% in the first quarter of the prior year. As a percentage of sales, operating and administrative expense increased primarily due to higher fringe benefit costs (.31%), utility costs (.10%), supply costs (.07%) and amounts accrued related to a non-income tax state audit (.23%). These increases were partially offset by a gain on the sale of assets (.17%). Fringe benefit costs increased primarily due to increased expense for employee health and pension plans and compensation costs recognized under share-based compensation plans. Utility and supply costs increased primarily due to higher energy prices.

On December 9, 2005, the Board of Directors declared a 9% increase in the semi-annual cash dividend. The increased semi-annual dividend of $.35 per Class A common share and $.228 per Class B common share will be payable January 26, 2006 to shareholders of record on December 30, 2005.

December 13, 2005

All statements, other than statements of historical fact, included in this report are or may be considered forward-looking statements within the meaning of federal securities law. The Company cautions the reader that there is no assurance that actual results or business conditions will not differ materially from future results, whether expressed, suggested or implied by such forward-looking statements. The Company undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof. The following are among the principal factors that could cause actual results to differ from the forward-looking statements: local economic conditions; competitive pressures from the Company’s operating environment; the ability of the Company to maintain and improve its sales and margins; the ability to attract and retain qualified associates; the availability of new store locations; the availability of capital; the liquidity of the Company; the success of operating initiatives; consumer spending patterns; the impact of higher energy prices; increased cost of goods sold, including increased costs from the Company’s principal supplier, Wakefern; results of ongoing litigation; the results of union contract negotiations; competitive store openings; the rate of return on pension assets; and other factors detailed herein and in the Company’s filings with the SEC.

VILLAGE SUPER MARKET, INC.

(in Thousands Except Per Share Amounts)

I, James Sumas, certify that:

 

I, Kevin Begley, certify that:

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Village Super Market, Inc. (the “Company”) on Form 10-Q for the period ending January 28, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James Sumas, Chief Executive Officer of the Company certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Village Super Market, Inc. (the “Company”) on Form 10-Q for the period ending January 28, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin Begley Chief Financial Officer of the Company certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that: